TORI Perspective on Trade Associations CSDR Letter

On 14 July 2021, 16 Trade Associations wrote to the European Commission and ESMA requesting that the Mandatory Buy-In (MBI) component of the CSDR Settlement Discipline Regime should not be implemented on 1 February 2022. This request only related to MBIs and not to the other components, including cash penalties.

The reasons for the request were essentially the same as provided in earlier letters and feedback:

  • Negative impact on European Capital Markets: reduced market liquidity and disproportionately increased costs for issuers and investors
  • Implementation and operating costs and risks: processing MBIs is going to be complex and expensive, there isn’t sufficient information to prepare properly in the time available, in addition to cost this means legal uncertainty for both EU and non-EU investors  

While firms need to continue their preparations for reducing fails and processing cash penalties, the approach for MBIs is less clear. We think that the choices open to firms can be broadly categorised as:

  1. Prepare for the worst: proceed with contractual repapering, appointment of buying-in agent, development / acquisition of tools, resources, processes, controls, etc
  2. Plan for the worst: understand the client and processing impacts and the project requirements so that a plan is ready if needed and agreed critical path activities are completed, but hold off implementing it until it is clear that there is no alternative
  3. Hope for the best: assume that MBIs won’t happen and do nothing  

Our recommendation for MBIs is to adopt option 2 (plan for the worst). This carries some risks but these can be addressed as part of the planning process. This option also provides the most flexibility if the response sits somewhere between the current proposed requirement and the request (for example, if the outcome is to retain the MBI requirement but change it in some way: remove the need to appoint a buying-in agent, allow pass-ons, significantly lengthen the extension period, etc).